Week-end Wrap – Political Economy – February 28, 2021

Week-end Wrap – Political Economy – February 28, 2021

by Tony Wikrent

Strategic Political Economy

Austerity and the Rise of the Nazi Party

Gregori Galofré-Vilà, Christopher M. Meissner, Martin McKee, and
David Stuckler
Economic History Association, published online by Cambridge University Press, 11 January 2021

We study the link between fiscal austerity and Nazi electoral success. Voting data from a thousand districts and a hundred cities for four elections between 1930 and 1933 show that areas more affected by austerity (spending cuts and tax increases) had relatively higher vote shares for the Nazi Party. We also find that the localities with relatively high austerity experienced relatively high suffering (measured by mortality rates) and these areas’ electorates were more likely to vote for the Nazi Party. Our findings are robust to a range of specifications including an instrumental variable strategy and a border-pair policy discontinuity design….

In this paper, we investigate the association between the austerity measures implemented by the German government between 1930 and 1932 and voters’ increased support for the Nazi Party. A growing literature studies the interactions between political preferences and fiscal policy with evidence that austerity packages are correlated with rising extremism (Alesina, Favero, and Giavazzi 2019; Bor 2017; Eichengreen 2015, 2018; Fetzer 2019; Ponticelli and Voth 2020)….

We also provide some novel quantitative estimates concerning the channels by which austerity mattered. To do so, we study the relationship between mortality rates and austerity. We find a plausible link, since where public spending on health care dropped more, mortality was higher. These places also saw a relatively large increase in Nazi support at the polls. Finally, looking at archival documents of Nazi propaganda, we document how Nazi leaders invoked austerity to attack Brüning and the Weimar Republic and how Brüning’s tax rises were seen as inefficient and unfair by the German masses. 

Eviction Moratorium Deemed Unconstitutional by Federal Judge in Texas

[Naked Capitalism 2-26-21]

Business Licensing and Constitutional Liberty
Amanda Shanor [The Yale Law Journal 314 (2016)]

….the Constitution is increasingly being invoked as a trump against certain types of economic regulation. My thesis is that the central arguments currently marshaled in favor of extending stringent judicial review to business licensing regulations are untenable. These lines of reasoning have no logical endpoint. Individual rights, on this view, could trump any manner of governmental regulation in favor of free-market ordering.

These business licensing cases raise deep and pressing questions about the purpose and scope of rights and constitutional judicial review more broadly today. Underlying these debates are competing conceptions of constitutional liberty. One view, perhaps the ascendant one, reflects free-market libertarian values, whereas others understand the First and Fourteenth Amendments to reflect ideals such as democratic self-governance, anti-subordination, or civic republicanism. Resolving disputes about the constitutional status of business licensing requires that we grapple with those deeper questions.

Week-end Wrap – Political Economy – February 21, 2021

Week-end Wrap – Political Economy – February 21, 2021

by Tony Wikrent

Strategic Political Economy

Nietzsche’s Marginal Children: On Friedrich Hayek.

Corey Robin [The Nation, May 7, 2013]

Why have marxists and socialists failed so spectacularly in opposing movement conservatism and neoliberalism?  I think one major factor is an intellectual infatuation with Nietzsche, which blinds them to Nietzsche’s oligarchical pedigree and mindset. This is why I believe we need a revival of the ideas and ideals of civic republicanism, because the issues always come down to republicanism versus oligarchical elites. 

The Nobel Prize–winning economist Friedrich Hayek is the leading theoretician of this movement, formulating the most genuinely political theory of capitalism on the right we’ve ever seen. The theory does not imagine a shift from government to the individual, as is often claimed by conservatives; nor does it imagine a simple shift from the state to the market or from society to the atomized self, as is sometimes claimed by the left. Rather, it recasts our understanding of politics and where it might be found. This may explain why the University of Chicago chose to reissue Hayek’s The Constitution of Liberty two years ago after the fiftieth anniversary of its publication. Like The Road to Serfdom (1944), which a swooning Glenn Beck catapulted to the bestseller list in 2010, The Constitution of Liberty is a text, as its publisher says, of “our present moment.”

But to understand that text and its influence, it’s necessary to turn away from contemporary America to fin de siècle Vienna. The seedbed of Hayek’s arguments is the half-century between the “marginal revolution,” which changed the field of economics in the late nineteenth century, and the collapse of the Habsburg monarchy in 1918. It is by now a commonplace of European cultural history that a dying Austro-Hungarian Empire gave birth to modernism, psychoanalysis and fascism. Yet from the vortex of Vienna came not only Wittgenstein, Freud and Hitler but also Hayek, who was born and educated in the city, and the Austrian school of economics….

Throughout his writing life, Nietzsche was plagued by the vision of workers massing on the public stage—whether in trade unions, socialist parties or communist leagues. Almost immediately upon his arrival in Basel, the First International descended on the city to hold its fourth congress. Nietzsche was petrified. “There is nothing more terrible,” he wrote in The Birth of Tragedy, “than a class of barbaric slaves who have learned to regard their existence as an injustice, and now prepare to avenge, not only themselves, but all generations.” Several years after the International had left Basel, Nietzsche convinced himself that it was slouching toward Bayreuth in order to ruin Wagner’s festival there. And just weeks before he went mad in 1888 and disappeared forever into his own head, he wrote, “The cause of every stupidity today…lies in the existence of a labour question at all. About certain things one does not ask questions.”

Beware Economists Warning Against “Too Much Stimulus” (Again)
Barry Ritholtz, February 18, 2021 [The Big Picture]

If you want to blame a specific school of thought for why the post-financial crisis recovery was so weak, start with the group who opposed a trillion dollar fiscal response to the GFC.

The Anti-Stimulus, Anti-Rescue crew have not learned anything from their prior mistakes. Not everyone who signed onto the full page advertisement taken on in the New York Times on January 9th, 2009 remain n the anti-stimulus camp. But there is a substantial overlap between those on the list below who opposed a more robust response to the GFC and a current group opposed a more robust response to the pandemic…. Here is the CATO Institute’s full page NYT ad from January 9, 2009:

Week-end Wrap – Political Economy – February 14, 2021

Week-end Wrap – Political Economy – February 14, 2021

by Tony Wikrent

Strategic Political Economy

“How The US Legalized Corruption”

[Indi Samarajiva, via Naked Capitalism Water Cooler 2-8-21]

“Americans have this thing called a fundraiser where you put a pile of bribes on a table, wave a wand of asparagus over it, and it just disappears. Access is still bought, but somehow because people ate food, it’s not corruption anymore. The press will literally report on the food. “In New York last weekend, $100,000 got donors a plate of grilled chicken and asparagus, a posed picture with President Trump in a palatial, 60-foot-long entryway, and a 20-minute group chat with the president. WTF is this? In any other country you wouldn’t report on the chicken, you’d report on the corruption.” (Details of a fund raiser dinner from the Washington Post).

Because this is all legal, Americans ignore how fucking insane it is. It’s just daylight bribery. This is what I mean when I say that America has legalized corruption. It’s not that your system is corrupt. Your system is corruption.

Property, Liberty, and the Rights of the Community: Lessons from Munn v. Illinois
Paul Kens [Buffalo Public Interest Law Journal, Volume 30 (2011)]

Abstract: When considering the extent to which the United States Constitution places a limit on government regulation of business, today's historians and constitutional theorists treat the question as a matter of balancing economic liberty or property rights against government power. Moreover, modem scholars commonly maintain that this balancing formula represents the predominant tradition in constitutional history. Tracing it back to the tenants of Jacksonian democracy that emphasized distrust of government, they imply that constitutional history has developed as a straight line: always with an emphasis on individual liberty and always with a presumption that entrepreneurial liberty should be favored over governments' power to regulate.

This paper will use the 1877 case Munn v. Illinois to demonstrate that prior to the late 1880s the paradigm for determining the constitution's limits on government regulation of business was actually quite different. There is no doubt that the Court has always emphatically recognized the importance of property rights. Nevertheless, during the first century under the Constitution, it treated business regulation as a matter of balancing entrepreneurial liberty against the rights of the community. Furthermore, it consistently held that, because state economic regulations were an expression of popular sovereignty and rights of the community, they should be presumed to be valid.

Munn is significant because in the conventional narrative it is portrayed as a steppingstone in the straight line evolution of constitutional doctrine that emphasizes individual liberty. A closer look at the case and the events surrounding it will demonstrate, however, that the majority in Munn actually based its opinion on the traditional emphasis on rights of the community. It will further demonstrate that for more than a decade after the opinion the Supreme Court steadfastly clung to that traditional view. Even under persistent pressure to change.

Fear of the Few: John Adams and the Power Elite
Luke Mayville [Polity, Volume 47, Number 1, January 2015]

Abstract:The political thought that informed the design of the United States Constitution largely neglected the danger posed by socioeconomic elites. The writings of John Adams, I contend, are exceptional in this regard. Using Adams’s writings as a vantage point, this article exposes two important blind spots in mainstream Founding-era thought and the Constitution it informed. Whereas the likes of Hamilton and Madison insisted that majorities held the clear preponderance of power in republican America, Adams maintained that an elite of wealth, birth, and beauty retained overwhelming power even after the abolition of formal distinctions. And whereas Federalists sought security against the threat of majority tyranny, Adams’s principal fear was of aristocratic tyranny—specifically, the tendency of the elite few to undermine both popular representation and effective government.

Week-end Wrap – Political Economy – February 7, 2021

Week-end Wrap – Political Economy – February 7, 2021

by Tony Wikrent

Strategic Political Economy

If There’s No Fear of Inflation, Why is GOP Against More Stimulus? – Rana Foroohar and Mark Blyth — Transcript here

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​​​​​​​Mark Blyth. ….arguing about deficits is just a footnote on the wider agenda of power for the sake of power. Why do they do this? Because they know that existentially Republicanism has run its course. As Rana just said, there’s only so much you can give to business before they’ve got everything, which is pretty much where we are now. There’s nothing more to give. We need huge amounts of infrastructure repair. We need huge amounts of social investment in the economy and elsewhere. And this is anathema to everything the Republicans have stood for and delivered on for the past 30 years, which is simply more money for me and to hell with the rest of you. So they’re not going to turn this around….

Rana Foroohar. I completely agree with that. And I think it actually brings up something I’m quite worried about, which is the fine line that the Biden administration has to walk right now in executing even part of their Build Back Better, Reward Work Not Wealth strategy, without creating such a bumpy ride from here to there that the Republicans can say, well, look, look what Joe Biden did. Now the markets have crashed... because if you think about what we’re trying to do, if we pull way back, this administration is trying to shift the American economy structurally from being an economy that is based on debt and asset price bubbles to one that is based on income and wage growth. And that’s a laudable goal. But it’s also like turning the Titanic.

….you might actually know when the markets crash that things are getting better in the U.S. economy because certain things have to be done. Raising taxes on companies, the labor share rising, some of the push for union labor that’s coming with the Defense Production Act. All of that is going to dampen profits. It’s going to frighten investors and the hot money is going to run.

Mark Blyth. ….the weird thing is there’s $18 trillion in negative yield and long-term government debt in the world today. Right. The existence of this is a bit like the existence of dark matter. It’s what binds the universe together. And if it exists, it means that all those other stories about hyperinflation, they simply can’t be true…. Because what it means is investors are willing to buy government debt at a loss. And if they’re willing to buy government debt at a loss simply because they want to purchase security, because they’re uncertain about the future, then by definition they cannot be expecting an inflation. Because if they were, they would insist on a higher interest rate, not a negative one….

….So let’s think about some of the models, that constrain us here. And I don’t mean sort of the fancy formal ones. I mean the informal ones in our heads. Most people do not understand that governments are not like households. Most people do not spend their time thinking about the difference between money and high-powered money, bank reserves, and all the rest of the stuff that makes government’s ability to finance itself qualitatively different from households, we’ve definitely love the household analogy… you’ve got to deal with the folk models in people’s heads. And the vast majority of Americans do not think that running up extra 15 trillion dollars in debt just because there’s a virus that’s taking out one in a hundred people is a good idea. And if you do that when it comes to the midterms, you’re going to pay an awful electoral price even if it is the right thing to do. 

Severe Dysfunction in Washington and Wall Street Puts the U.S. at Risk of Capital Flight

Pam Martens and Russ Martens: February 3, 2021 [Wall Street on Parade]

There is recent evidence that the U.S. is already seeing capital flight. According to a January 24 report from the United Nations Conference on Trade and Development, China beat out the U.S. in foreign direct investment inflows last year, receiving $163 billion versus $134 billion for the U.S. That was a radical change from 2019 when the U.S. received $251 billion in foreign direct investment versus $140 billion for China.

Capital flight could accelerate this year if the craziness in Congress and Wall Street continues. Just ask yourself this, would you want to invest in a country that had scenes of a bloody attempted coup of the government featured on the front pages of newspapers around the world? Would you want to risk your savings in a stock market that has ceased to perform its two key functions: a pricing mechanism for the value of companies and efficient allocation of capital to worthy businesses and industries.

Elon Musk Interview: 1-on-1 with Sandy Munro

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Elon Musk Discusses Build Quality Problems With Engineer Who Compared Model 3 To ‘A Kia In The ’90s’ 

[Jalopnik, via The Big Picture 2-4-21]

Progressives and leftists using a Marxian type of class analysis have failed to notice that Musk has accomplished something no one else has done in just over a century: achieve mass production of a new automobile in USA. While Musk’s relations with his employees leaves much to be desired, and his political views are anything but progressive, the fact is that Muck is providing a rare example of new technologies being implemented to create an economic phase shift. Those critics who point out that Musk’s companies depend on government support miss the point that government support is exactly what is needed to push the economy in new directions — in this case, ending our dependence on burning fossil fuels.  In their conversation, Musk and Munro discussed a number of topics that illustrate the analytical power of Veblen’s business versus industry paradigm: design of seats for passenger vehicles; wire harnesses; modern road design; and why getting an MBA prevents you from managing an industrial corporation competently. 

What happens when you take a manufacturing expert with decades of automotive engineering experience and put him in a room with a science nerd like Elon Musk? ….He recently sat down with one of Tesla’s biggest build-quality critics, manufacturing expert Sandy Munro, founder of the benchmarking consultancy Munro & Associates. Here’s what Musk had to say about large panel gaps and poorly designed body structures in what has to be one of the most epic technical interviews I’ve seen in a while…. 

Tesla’s CEO then fesses up to his company’s build-related mistakes and dives into why they’ve been happening….  “The organizational structure errors, they manifest themselves in the product,” he begins. “We’ve got probably the best material science team in the world at Tesla. Engineers would ask what’s the best material for this purpose...and they got like 50 different answers. And they’re all true individually, but they were not true collectively,” he admits.

“When you try to join all these dissimilar alloys...you’ve got gaps that you’ve got to seal, and you’ve got to join these things, and some of them need to be joined with rivets, some of them need to be joined with spot welds, some of them need to be joined with resin or resin and spot welds,” he continues. “Frankly, it looks like a bit of a Frankenstein situation when you look at it all together.” 

….The rest of the interview remains thoroughly nerdy. There’s discussion about cars’ natural frequencies, about how reducing polar moment of inertia by bringing mass toward the car’s center of mass yields better handling. There’s discussion about tolerance stack-up and how that leads Tesla to almost always err toward fewer pieces and Lego-like parts precision.

Munro mentions his company’s BMW i3 findings, lauding the German automaker’s excellent build quality for the carbon-fiber body. Musk replies that one of his major concerns about use of carbon fiber is that it has a vastly different coefficient of thermal expansion than aluminum or steel, and this can cause fitment issues when the vehicle is subjected to certain thermal environments.